Even before the country could heave a sigh of relief post Hurricane Harvey, another storm started brewing in the open Atlantic Ocean. The new threat called Hurricane Irma has been accredited the Category 5 status (the highest degree) and is feared to be more disastrous than Harvey. It is expected to ravage the Caribbean islands and Florida this week. Florida announced a state of emergency.
Below we highlight a few potential ETF and stock winners and losers from Irma.
Severe destruction is likely in Florida. Insured losses could be as high as $125 billion to $130 billion, as per an analyst at Barclays, quoted on Bloomberg. Property and casualty insurance companies may be hit hard as these are likely to shell out handsomely on claims in such catastrophic storms.
Insurance stocks normally fall over 1% in the month, following the disaster caused by a Category 3 storm. So, the impact of Hurricane Irma on insurance stocks is anybody’s guess. Already, shares of property and casualty homeowners insurance companies like Universal Insurance Holdings Inc. UVE, Heritage Insurance Holdings Inc. HRTG and HCI Group Inc. HCI plunged about 14.6%, 17% and 20% on Sep 5. Reinsurers XL Group Ltd XL and Everest Re Group Ltd. RE too lost about 5.8% and 6.9%, respectively.
Insurance companies like Chubb Limited CB, Allstate Corporation ALL, Prudential Financial Inc. PRU and Progressive Corp. PGR are also likely to be hit hard. Naturally, the insurance ETFs iShares Dow Jones US Insurance Fund (IAK - Free Report) andSPDR S&P Insurance ETF KIE will feel the brunt (see all Financials ETFs here).
As per an article published on CNBC, a severe impact from Irma could roil rail and container activity, and crush infrastructure for transportation. Airlines started considering Florida airports for their Hurricane Irma change-fee waivers. American (AAL - Free Report) , JetBlue (JBLU - Free Report) , Spirit (SAVE - Free Report) , and Southwest (LUV - Free Report) are some of the airlines doing this.
As per the policy, “they permitted customers to make one change to their itineraries without paying change fees that can cost $200 or more per passenger.” Naturally, transportation ETFs like SPDR S&P Transportation ETF (XTN - Free Report) and U.S. Global Jets ETF JETS may feel the pressure ahead.
Since Caribbean islands are famed for cruise trips, cruise stocks and ETFs deserve a special mention in this case. Operators are abandoning trips that haven’t left port.
Carnival Corp. CCL, Royal Caribbean Cruises Ltd. RCL and Norwegian Cruise Line Holdings Ltd. (NCLH) lost about 3.1%, 4.2% and 3.2%, respectively, on Sep 5. With this, PowerShares Dynamic Leisure and Entertainment (PEJ - Free Report) and iShares Edge MSCI Multifactor Consumer Discretionary ETF (CNDF) could feel a slight adverse impact as these funds have certain exposure to cruise lines (read: What Lies Ahead of Leisure & Travel ETFs in 2H?).
Analysts are apprehensive that restaurants may see considerable sales reduction and destruction due to Irma. A Canaccord analyst said that some restaurants have considerable exposure to Florida. Among these, Fiesta Restaurant Group Inc. FRGI (37% exposure), Ruth's Hospitality Group Inc. (RUTH) (21% exposure), Bloomin' Brands (BLMN) (19% focus), BJ's Restaurants BJRI (12%), Darden Restaurants Inc. (DRI) (11%), Ruby Tuesday Inc. (RT) (10%) and Brinker International Inc. (EAT) (10%) have a double-digit focus. These stocks lost in the range of 0.4% to 5% on Sep 5. USCF Restaurant Leaders Fund (MENU - Free Report) would thus be on high alert.
Three agricultural commodities, namely orange juices, cotton and lumber, saw price rises in recent trading. Key cotton-producing areas around the Gulf Coast have already suffered from flooded fields caused by Hurricane Harvey. Crops in parts of Georgia and South Carolina will also be at risk of yield losses from Irma, as per MDA and quoted on Bloomberg. As a result, cotton prices rallied. iPath Pure Beta Cotton ETN CTNN jumped about 7.3% on Sep 5.
Lumber prices surged on apprehensions of damage. This should act as a tailwind foriShares Global Timber & Forestry ETF (WOOD - Free Report) while orange prices skyrocketed as Florida is key growing region of oranges.
The condition of houses in an area ravaged by a massive storm with 180 mile-per-hour winds can well be imagined. So, home improvement retailers like Home Depot Inc. (HD - Free Report) (up 1.43% on Sep 5) and Lowe's Companies Inc. (LOW) (up 1.4%) are in a bright spot. ETFs like Consumer Discretionary Select Sector SPDR Fund (XLY) and PowerShares Dynamic Building & Construction (PKB - Free Report) should also benefit (read: Home Retailer ETFs Set to Gain After Harvey).
First Harvey, and now Irma should shower gains on infrastructure stocks as re-building will push up their demand. So, companies dealing in building materials should see a surge. The Materials Select Sector SPDR Fund (XLB - Free Report) and SPDR S&P Homebuilders ETF (XHB) have high chances of outperforming.
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